Saturday, July 18, 2009

Indian infrastructure - cause for cheer?

This graphic comparing the completion schedules of the major recently completed international airport terminals gives cause for cheer.

The Delhi International Airport Limited (DIAL), led by GMR Group, are expected to complete the brand new Terminal 3, at a cost of nearly Rs 10,000 Cr within the schedules time, before the start of the 2010 Commonwealth Games in Delhi. The Terminal 3 is being touted as the third largest terminal in the world (after Dubai International Airport's Terminal 3 and Beijing Capital International Airport's Terminal 3). The recently inaugurated Terminal 1D that caters to all domestic flights is an impressive achievement.

I have two possible explanations behind the success of the DIAL

1. As the Businessline article points out, construction started a little late in December 2006, only after the site was handed over to the developer. This helped plan for the entire construction period, and ensure that "once the construction started, no hold-ups occurred because some contract or the other had not been entered into, or when entered into, was under-specified". Typically, as the example of the recently opened Bandra-Worli Sea link illustrates, site clearance and litigation associated with it is a critical delaying factor.

2. More importantly, the recent experience and learnings from the Hyderabad International Airport Ltd (HIAL) (constructed by a GMR led consortium) must have been of enormous help. The contractor had the luxury of relocating the entire material and manpower supply chain from its Hyderabad experience. The project managers, designers, engineers, sub-contractors (with their moulds and castings, and ancillaries), suppliers, and operational service providers could plan out their schedules and time-lines more effectively.

The success of GMR underlines the crucial importance of gaining expertise in construction and management of massive infrastructure projects. It is not easy to plan for and mobilize materials and man-power on such a massive scale as required for these projects. Indian private companies sorely lack this experience and this partially explains why we have been so badly behind China in the construction of mega infrastructure (and even any type of construction works) projects.

As I had blogged earlier, to a large extent, hitherto our private sector infrastructure construction majors have bidded for massive power generation, ports, airports, metro-rail and other projects without the requisite capabilities - both professional expertise and the resource supply-chain - to execute these porjects. In the main, these local private bidders offered the major share of the finances for the project and rode on the back of the project management capability offered by their foreign consortium partners (who were anxious to get a share of the Indian growth story). However, there are clear limitations to what a foreign consortium partner, however large, can deliver.

It needs to be borne in mind that even the Chinese contractors took sometime to find their feet. But with some runs on board, they took off. Only when that happened did the capital-investment in infrastructure driven Chinese growth really take-off. So maybe, with a few more successes like the airports and the Bandra-Worli sea link, there is hope ahead at the end of the long tunnel of Indian infrastructure sector!